Loan Standards Tighter than a Decade Ago, Fed Finds

Lending standards for most business and residential real estate loans as well as subprime consumer loans are tighter than the 10-year average, according to a survey of senior bank loan officers released by the Federal Reserve Board.

The central bank's quarterly Senior Loan Officer Opinion Survey included a series of special questions concerning the overall strength of lending standards today versus the average since 2005, effectively asking loan officers to gauge whether the lending atmosphere today is more or less stringent than it has been in the last ten years. Responding officers said that for most categories, lending conditions are more stringent today than they had been.

"Banks continued to report in the July 2016 SLOOS that the levels of standards for all types of RRE loans are currently tighter than the midpoints of the ranges observed since 2005," the report said. "Moreover, banks indicated that consumer loans to subprime borrowers are currently still tighter than their midpoints … [and] also generally indicated that standards on all types of CRE loans are currently tighter than the midpoints of their respective ranges."

There were some exceptions. Commercial and industrial lending standards have generally eased since 2005, according to the survey, as have consumer and residential real estate loans for prime borrowers. But for all business loans, fewer respondents said that standards had gotten easier than loan officers asked the same question a year ago.

The survey's results come as observers are increasingly concerned about the potential for a consumer credit bubble caused by a macroeconomic environment where money is cheap and economic growth is slow.

Last week, the Office of Financial Research said in its semiannual report on systemic financial risk that reach-for-yield behavior and the potential for interest rate risk makes the global financial system only moderately stable, susceptible to shocks from an already sputtering global economy and unexpected events like the UK's decision in June to leave the European Union.